What is a sideways trend in the stock or foreign exchange market?
In stock trading, a trend is usually called the movement of the price of an asset; depending on whether the price is rising or falling, the trend can be upward or downward .
But sometimes traders are faced with such a concept as a sideways trend, which is not always clear to newcomers to the stock exchange.
A sideways trend is a situation where asset prices fluctuate in a small range without a clear direction down or up.
On the chart, the situation looks like a horizontal or slightly inclined price movement corridor.
At the same time, the price does not move up or down, but only sideways, which was the reason for the name of this term.
- Uncertainty in the market. In conditions of uncertainty, investors do not want to make large transactions, so prices remain in a sideways trend.
- Balance of power between buyers and sellers. When buyers and sellers balance each other, prices cannot move in any particular direction.
- Technical factors. In some cases, a sideways trend may be caused by technical factors such as consolidation or a trend reversal.
Is it possible to trade during a sideways trend?
It all depends on how wide the corridor formed by the price is; its width can vary from several points to hundreds of points.
Trading in a sideways trend is quite difficult because there is no clear direction of price movement. However, there are some strategies that can help traders make profits in such conditions.
One of the popular strategies is trading within a range, that is, when a pattern is observed in which the price starts from one of the boundaries of the range and moves to the opposite one. When approaching another border, the scenario repeats.
At the same time, the duration of transactions rarely exceeds several minutes and this makes it possible to use large leverage. This trading option is great for scalping .
Another strategy is to trade on a breakout; in this case, a breakout of one of the boundaries serves as a signal to open a new trade.
But in this case, you do not trade directly during a sideways trend, but open a trade after its completion. Description of the strategy - https://time-forex.com/strategy/proboynay-strategiy
Advantages and disadvantages of a sideways trend
A sideways trend can have both advantages and disadvantages for investors.
Advantages:
A sideways trend can be profitable for traders who can correctly identify the direction of the price breakout.
A sideways trend can be a good time to buy stocks or currencies that are in a long-term uptrend.
Flaws:
This type of trend can be difficult to trade because there is no clear direction of price movement. And using a trading strategy in a narrow price range allows you to make money only with high leverage, which is quite risky.
If a trader decides to open a deal on a breakout, he is forced to wait for the price to overcome the boundaries of the price channel . Such a wait may drag on, during which time the funds will be “frozen” and will not bring profit.